Pricing decisions and subsidy preference of government with traditional and green products

Purpose - This study aims to explore the government’s subsidy preference and pricing decisions of a manufacturer who produces traditional and green product simultaneously under different government subsidy policies. Design/methodology/approach - The authors establish a model consisting of a government, a set of heterogeneous consumers and a manufacturer. Three government subsidy policies are investigated without government subsidy (NS), government subsidy to consumer (CS) and government subsidy to the manufacturer (MS). Findings - The results show that the government subsidy can increase both the green product’s demand and the manufacturer’s profit. The subsidy level and government’s utility under the CS policy are equal to those under the MS policy. Furthermore, if the government’s subsidy level is exogenous, there exists a Pareto improvement region when social welfare for unit greenness level is high. That is, if the government’s subsidy level under the CS policy is higher than that under the MS policy, both government and manufacturer prefer the CS policy; otherwise, they prefer the MS policy. Research limitations/implications - This paper considers the market where there is a monopoly green manufacturer and a government that only provides subsidy policy. In fact, competition from traditional manufacturers and carbon taxes are also worth exploring in future research. Practical implications - This study provides some suggestions for government subsidy and provides guidance for the manufacturer’s pricing decisions under different government subsidy policies. Originality/value - This paper is the first to compare government subsidy to consumer with a government subsidy to the manufacturer and investigate the pricing decisions of a manufacturer who produces traditional and green product simultaneously by considering an endogenous subsidy level of government.